The United Kingdom’s economy experienced its fastest growth in nearly three years during the first quarter of 2024, pulling out of the mild recession that began in the latter half of the previous year and providing a boost to Prime Minister Rishi Sunak ahead of the upcoming election. According to the Office for National Statistics, the GDP increased by 0.6% in the three months leading up to March, marking the strongest expansion since a 1.5% rise in the fourth quarter of 2021.
The data was welcomed by Sunak who said the economy had “turned a corner”, while the opposition Labour Party, which has a large lead in opinion polls, accused Sunak and finance minister Jeremy Hunt of being out of touch.
“There is no doubt it has been a difficult few years, but today’s growth figures are proof that the economy is returning to full health for the first time since the pandemic,” Hunt said.
Labour contested those claims.
“This is no time for Conservative ministers to be doing a victory lap and telling the British people that they have never had it so good,” said Rachel Reeves, who hopes to succeed Hunt as finance minister after an election expected later this year.
First-quarter economic growth was faster than the 0.3% in the euro zone and the 0.4% quarterly growth in the United States.
However, Britain has still had one of the slowest recoveries from the effects of the coronavirus pandemic among major advanced economies, exacerbated by a surge in European natural gas prices after Russia invaded Ukraine in 2022.
At the end of the first quarter of 2024, the country’s economy was just 1.7% bigger than its level in late 2019, before the pandemic, with only Germany in the G7 faring worse.
“Despite the better near-term outlook, the improvement in GDP growth looks likely to be constrained by the ongoing weakness in productivity growth as well as reduced scope to increase employment levels,” Yael Selfin, chief economist at KPMG UK, said.
SURPRISE FOR BOE
The first-quarter growth exceeded all forecasts in a Reuters poll of 39 economists which had pointed to a 0.4% expansion of gross domestic product in the January-to-March period, after GDP shrank by 0.3% in the final quarter of 2023.
Friday’s data also showed that GDP in March was 0.7% higher than a year earlier, above expectations of a 0.3% rise.
The Bank of England, which held interest rates at a 16-year high on Thursday, had forecast quarterly growth of 0.4% for the first quarter and a smaller 0.2% rise for the second quarter, and a weak expansion of just 0.5% for 2024 as a whole.
Officials on the BoE’s Monetary Policy Committee signalled the central bank could shift to cutting rates as early as June, but some economists suggested on Friday that stronger GDP growth could delay the Bank’s efforts and stoke inflation.
“This is likely to be a surprise to the MPC and may result in upward revisions to inflation at the next Monetary Policy Report,” economists at Japanese bank Nomura said.
Sterling strengthened against the U.S. dollar after Friday’s ONS figures were released.
LIVING STANDARDS
On a monthly basis, the economy grew by 0.4% in March, much faster than the 0.1% growth forecast by economists in the Reuters poll, reflecting strength in retail, public transport, haulage and health – partly due to fewer public-sector strikes.
Car manufacturing also performed well, offset by continued weakness in construction, the ONS said.
GDP per head rose for the first time in two years in the first quarter, up 0.4%, but was still 0.7% lower than a year earlier, highlighting the ongoing squeeze on living standards and Britain’s struggle to boost productivity.
“In per capita terms, it could be said that UK households have seen little meaningful improvement in living standards in the last two years,” Gora Suri, economist at PwC, said.
With Inputs from Reuters
